I am a partner at Phillips & Cohen LLP, the nation’s most successful law firm representing whistleblowers, and recently was named one of Lawdragon's 500 Leading Lawyers in America. I also was selected as "Whistleblower Lawyer of the Year" for 2012 by a national nonprofit group. Our cases have recovered more than $11 billion in civil settlements and related criminal fines. I helped one of my clients obtain the largest SEC whistleblower reward ever: $30 million. Phillips & Cohen represents whistleblowers around the world in “qui tam” lawsuits brought under the False Claims Act and claims made under whistleblower reward programs at the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Internal Revenue Service. Our whistleblower cases have helped set records, including the two biggest healthcare fraud settlements ($3 billion and $2.3 billion) and the largest qui tam settlement by a defense contractor ($325 million). For our work on whistleblower cases, we were named to the National Law Journal’s elite “Plaintiffs’ Hot List”
five times between 2004 and 2012. www.phillipsandcohen.com. Twitter @FraudMatters.

JPMorgan and Jamie Dimon Need an Extreme Makeover

“Life goes on.” That statement this week by JPMorgan Chase CEO Jamie Dimon as part of a so-called apology to shareholders for the $6 billion London Whale trading loss is emblematic of the man at the helm of a corporate culture that places little value on compliance and business integrity.

Although JPMorgan’s board of directors docked Dimon’s bonus by 50 percent, he still walked away with $11.5 million in compensation for 2012 – a staggering sum in a year when the bank faced months of embarrassing revelations and serious questions about the legality and integrity of its practices.

Whatever else Dimon accomplished at JPMorgan this past year, it was overshadowed by a long list of legal, regulatory and ethical lapses that came to light in 2012: the massive losses from the London Whale trading fiasco; a $4.3 billion settlement with federal and state prosecutors over mortgage abuses; a $297 million settlement with the Securities and Exchange Commission (SEC) over charges of lying to investors about the quality of mortgage-backed bonds; a $45 million settlement with the Department of Justice over charges of veterans’ loan fraud; a cease-and-desist order for failures to comply with federal anti-money laundering laws; an ongoing federal investigation of LIBOR-rigging; a temporary ban on energy trading for failing to disclose information in a market manipulation investigation by the Federal Energy Regulatory Commission; accusations of manipulating silver prices.

And that’s just one year.

Dimon’s consummate “life goes on” blow-off makes it crystal clear that a $10 million bonus is hardly a stinging rebuke and won’t have any deterrent effect. Instead of rewarding him with a champagne-and-lobster pay package, JPMorgan’s board should have eliminated Dimon’s entire bonus. But JPMorgan’s board has proven that it cares about compliance as little as Dimon apparently does.

Employees would learn that under these Dodd-Frank Act programs: (1) they could receive a sizeable reward if they notify regulators of securities and commodity laws violations and the SEC or CFTC recovers at least $1 million as a result; (2) they could report these violations anonymously through a lawyer; and (3) there are anti-retaliation and job protection provisions.

Similar whistleblower programs have proven to have a powerful deterrent effect. Studies have shown that the False Claims Act, which rewards private citizens who report healthcare and other types of fraud against the government, has deterred many billions in potential frauds.

Nothing will change the “we’re not going to get caught” mentality prevalent in Wall Street’s executive suites more quickly than multiplying the chances of getting caught, which robust whistleblower programs do. The SEC and CFTC programs “incentivize integrity” in real dollars and cents.

Sean McKessy, head of the SEC Whistleblower Office, recently noted at a conference that some corporations have declined to inform their employees about the whistleblower program. Those corporations are taking a shortsighted approach. Companies’ illegal actions are what produce whistleblowers – not the laws that protect and reward them. In the vast majority of cases, insiders who seek out my firm to file whistleblower claims do so because their employers are engaging in fraudulent or wrongful practices and have unresponsive or dysfunctional compliance programs. We do not hear from people who work for companies with strong and responsive compliance functions.

Congress recognized the wisdom of educating employees about whistleblower programs when it passed the Deficit Reduction Act of 2005. The law requires any hospital or other entity that receives more than $5 million in Medicaid payments per year to provide information to its employees, contractors and agents about federal and state false claims laws and their whistleblower reward provisions.

The Justice Department has instituted similar requirements in some corporate integrity agreements signed in the past few years with pharma companies. Knowing that its employees have an incentive to report wrongdoing encourages companies that lag in compliance and oversight to get serious about their obligations.

JPMorgan and Jamie Dimon failed to police their business in the traditional ways; it’s time to get their employees involved.

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You are absolutely right. While the American free enterprise rewards risk takers, so does it reward ignoring ethics rules. The rational for that thinking comes in many forms – “the ends justify the means”, “once is enough”, “nobody is looking”,….

The worst rational for fraud is the “bought-off loyalty” thinking.

The costs from that erosion of ethics are long lasting and the expense is born out by the unethical behavior executives’ internal and external competition. Unfortunately, the ethics lessons learned attending business schools are too often forgotten when greed and self-importance become the priorities.